Seller Financing is moving properties quickly and at top dollar. The cost of obtaining financing from the banks is over $4,000 for just a $120,000 mortgage loan. It is driving buyers away. Self-employed buyers are not getting loans at all. Forget getting a loan for land or a second home. They are just about not available today. Couple that with the difficulty that buyers are having just getting the banks to agree to lend at all, plus the requirements for documentation and you see the overwhelming popularity of Seller Financed homes.
What does that mean? If you own a property free and clear (no mortgage lien on it) you have a distinct advantage in selling it compared to other homes that are on the market and that are your direct competition. That includes all price ranges too.
It also means that you will not get paid off at the close of the sale. You will receive monthly payments from the buyer with interest. Consider it cash flow income. If you do not need the cash out of the sale, you can earn a lot more interest than if you were put the money into a savings account or certificate of deposit. Banks are paying 1-2% interest. These financing arrangements pay an average of 7%. On a $100,000 bank deposit you would receive $166.67 per month interest. With Seller Financing at 7% you would receive $665.30 per month for 30 years. Sometimes a buyer may only need some time to repair their credit or have a job position long enough to qualify for a loan. In those cases we can have the entire loan balance payable as a balloon payment in 3 or 5 years.
The Seller Financing is accomplished using the Account Servicing Department of the title company. They receive the monthly payments from the Buyer and send you a check. They take care of the accounting and provide monthly statements to you and the buyer. We have the Buyer pay the set-up fee of about $200 for the servicing. They also pay a small fee every month as part of their payment.
You no longer own the property so you have no responsibility for the taxes or the other liabilities of ownership. The taxes and insurance can be collected by the Account Servicing Department monthly. They would then pay the tax bills and insurance premiums on behalf of the Buyer.
What is the risk? If the Buyer pays late there is a late fee added. If they default on the loan, you can foreclose and get the property back and sell it again. You even get to keep all the money they paid in before defaulting. The downside is some risk of damage to the property if you had to foreclose and take it back. The other risk is taking it back after a value decline. We minimize the risk by having the Buyer provide the Seller with a copy of their credit report. The Seller can deny the loan or accept it based on that credit report. Yes there are risks. However, the risk is usually outweighed by the return.
We recently sold 2 homes and have three contracts on another property by offering Seller Financing. All have found a buyer within 2 days! The phones are ringing. Seller Financing does not require an appraisal. They are sold "As IS". One sold for over the asking price because of competition to get the deal by solid buyers who did not fit within the criteria required by a lender for a bank loan.
If you own a property "Free and Clear" you definitely should consider offering Seller Financing. It could quickly get you more for the property, more return on the money you have in equity, and provide a home for someone who is able to make the payments but can't get traditional financing. There are a lot of those people out there that would love to buy your home.
If you have a loan on the property you cannot provide Seller Financing. Some agents structure a "Contract for Sale". Those contracts give equity to the buyer and will cause your lender to call the loan immediately due.
Just make sure you are working with a Real Estate Agent who is knowledgeable in Seller Financing and can guide you through the process. We are experienced and knowledgeable. I have written many Seller Financing deals over the years. Be sure that the down payment is sufficient to cover all the closing costs of commission, title and escrow, so you come away with some cash. It may be the only way for you to dispose of the property in this economic time.
Jerry Germansen, Associate Broker
eXp Realty Arizona
928 632 3906
www.AllofPrescott.com
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